Details of Public Law 119-21, section 70437 , One Big Beautiful Bill Act

This provision adds a new section that redesignates current IRC section 1062 as IRC section 1063. This provision would allow, in the case of gain from the sale or exchange of qualified farmland property to a qualified farmer, at the election of the taxpayer, the portion of the net income tax of such taxpayer for the taxable year of the sale or exchange which is equal to the applicable net tax liability to be paid in 4 equal installments over four years.

An election to pay tax in installments must be made by the due date for the return of tax for the taxable year in which the gain from the sale or exchange of qualified farmland property to a qualified farmer occurs, without regard to extensions. The first installment would be required to be paid on the due date for the return of tax for the taxable year in which the gain occurs and each succeeding installment would be required to be paid on the due date of the return for the taxable year following the year that the preceding installment was made.

In the case of a sale or exchange by a partnership or S corporation, the election is made at the partner or shareholder level. The Secretary could prescribe regulations for purposes of the election.

If the taxpayer fails to timely pay any installment, the unpaid portion of any remaining installments becomes due on the date of the failure. If the taxpayer dies, then the unpaid portion of any remaining installments becomes due on the date of the return for the taxable year in which the taxpayer dies.

For a C corporation, trust, or estate, if there is a liquidation or sale of substantially all the assets of the taxpayer, a cessation of business by the taxpayer (in the case of a C corporation), or any similar circumstance, then the unpaid portion of all remaining installments is due on the date of such event (or the day before the petition is filed in a Title 11 or similar case). However, this would not apply if the sale of substantially all the assets of a taxpayer is to a buyer who enters into an agreement with the Secretary making the buyer liable for the remaining installments due in the same manner as if the buyer were the taxpayer.

This provision would also require the proration of installments if a deficiency is assessed with respect to the tax liability from the gain. The prorated portion of the installment that is not currently due would be due at the same time as such installment and the prorated portion of an installment that was already due would be paid upon notice and demand. However, the installments would not be prorated if the deficiency was due to negligence, intentional disregard, or fraud.

The provision defines “qualified farmland property” as real property located in the United States that has been used by the taxpayer as a farm for farming purposes or leased by the taxpayer to a qualified farmer for farming purposes, during substantially all of the 10-year period ending on the date of the qualified sale or exchange, and which is subject to a covenant or other legally enforceable restriction which prohibits the use of such property other than as a farm for farming purposes for any period before the date that is 10 years after the date of the sale or exchange. Property that is used or leased by a partnership or S corporation would be treated as used or leased by each person who holds a direct or indirect interest in the partnership or S corporation.

The provision defines “qualified farmer” as any individual who is actively engaged in farming within the meaning of subsections (b) and (c) of section 1001 of the Food Security Act of 1986.

The terms farm and farming purposes have the same meanings as defined under IRC 2032A(e).

California conforms by reference to Subchapter O of Chapter 1 of Subtitle A of the IRC, relating to gain or loss on disposition of property, as of the specified date of January 1, 2025, in RTC section 18031. As a result, California would not conform to these provisions.

The estimated revenue impact to conform to the above federal provisions would result in the following loss:

26/27 27/28 28/29 29/30 ($100,000,000) ($70,000,000) ($40,000,000) ($16,000,000)